IPO Note | Financials
Sept 19, 2017
SBI Life Insurance Co Ltd
SUBSCRIBE
sue Open: Sept 20, 2017
Is
Strong parent backing leaves no scope for doubts
Issue Close: Sept 22, 2017
SBI Life Insurance is a JV between State Bank of India (SBI-70%), and BNP Paribas
Cardiff (26%). The insurer’s new business premium grew 35% from FY15 to FY17;
it has a leadership position with 20% market share in New Business Premium
Issue Details
(NBP) in FY17.
Face Value: `10
Strong premium growth has resulted consistent market share gain: SBI Life has
been reporting strong growth in NBP, with 38.9% growth in FY2017 and 3 year
Present Eq. Paid up Capital: `1,000cr
CAGR of 28.3% v/s. industry growth rate of 26.2% and 13.5% respectively. Over
Offer for Sale: **12cr Shares
FY2014-17, SBI Life has improved its market share by
~300bps to
20%
(FY2017). Among the Private Insurers, SBI holds the leadership position, followed
Fresh issue: NA
by HDFC Life - 17.2%, ICICI Pru - 15.5% and retained No. 1 position since last 8
Post Eq. Paid up Capital: `1,000cr
years in NBP.
Widest distribution network backed by parent has ensured healthy AUM growth:
Issue size (amount): *`8,220cr -**8,400 cr
SBI Life’s parent i.e. SBI has a mammoth network of ~24,000 branches, which
has helped it in garnering new business on a continuous basis. This has been
Price Band: `685-700
instrumental in the strong AUM growth up 17.1% over FY2015-17 v/s. ICICI Pru’s
Lot Size: 21 shares and in multiple
10.7% and HDFC Life’s 16.9% over the same period. Low miss-selling, high claim
thereafter
settlement and low surrender ratios will continue to drive the business of the
Post-issue implied mkt. cap: *`68,500cr -
company and we expect high double digit growth to sustain for multiple years
**`70,000cr
going ahead.
Promoters holding Pre-Issue: 96%
Diversified product portfolio, high solvency & persistency makes SBI Life’s business
Promoters holding Post-Issue: 84%
more predictable: SBI life has a well balanced portfolio (ULIP - 50.5%, Non
participating - 34.7% and Participating - 15.4%) and is well capitalised with a
*Calculated on lower price band
solvency ratio of 211% (mandatory - 150%). This will ensure growth without
** Calculated on upper price band
dilution in the coming years, boosting the RoE from current level of 17%. Further,
Book Building
13/37/61 month persistency ratio is the best among Private Players (SBI -
81.1/67.4/67.2, ICICI Pru - 85.7/66.8/56.2 & HDFC Life - 80.9/63.90/56.8).
QIBs
50% of issue
This reflects in the lowest surrender ratio of 22.8% among the private players
Non-Institutional
15% of issue
(ICICI Pru - 52.8% and HDFC Life 31.3% for FY2017).
Retail
35% of issue
Outlook & Valuation: We believe the Indian Life Insurance industry is in a phase
of high growth and lower penetration will ensure the growth remaining higher for
next couple of years. SBI Life with its strong brand name and wide distribution
Post Issue Shareholding Pattern
network is one of the best plays for Indian Life Insurance industry. At the upper
Promoters
84%
price band of `700 the issue is offered at 4.2x its Embedded Value of `16,538cr,
little higher than 3.8x for ICICI Prudential. We believe the premium valuation for
Others
16%
SBI is justified due to its higher incremental market share gain, and hence we
recommended investors to “SUBSCRIBE” to the issue with long term perspective.
Key Financials
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17
Premium Income
10,345
10,702
12,780
15,665 20,852
% Growth YoY
3
19
23
33
PAT
630
728
815
844
955
% Growth YoY
15
12
4
13
IEV
12,548 16,538
RoE
23
22
20
18
17
PE
111
96
86
83
73
Jaikishan J Parmar
P/BV
26
21
17
15
13
+022 39357600, Extn: 6810
P/EV
-
-
-
6
4
[email protected]
Source: RHP, Angel Research; Note: Valuation ratios based on pre-issue outstanding shares and at upper end of the price band
Please refer to important disclosures at the end of this report
1
SBI Life Insurance Company Ltd | IPO Note
Company background
SBI Life Insurance Company Ltd was established as a joint venture between the
State Bank and BNPPC in 2001. As of July 31, 2017, it had a comprehensive
product portfolio of 37 individual and group products (of which eight products are
group products), including a range of protection and savings products to address
the insurance needs of diverse customer segments.
SBI Life is India’s largest private life insurer, in terms of New Business Premium
generated in each fiscal year, since Fiscal 2010 (Source: CRISIL Report). It has also
increased the market share of New Business Premium generated among private
life insurers in India, from 15.9% in FY2015 to 20% in FY2017 (Source: CRISIL
Report). Between FY2015 and FY2017, SBI Life’s New Business Premium
generated increased at a CAGR of 35.4%, which is the highest among the top five
private life insurers (in terms of total premium in Fiscal 2017) in India (Source:
CRISIL Report).
SBI Life has developed a multi-channel distribution network comprising an
expansive bancassurance channel, including State Bank, the largest
bancassurance partner in India, a large and productive individual agent network
comprising 95,177 agents as of July 31, 2017, as well as other distribution
channels. In Fiscal 2017, it collected the highest amount of New Business Premium
generated by private life insurers in India both through the bancassurance channel
as well as through an individual agent network (Source: CRISIL Report).
Exhibit 1: New Business Premium split by product type
Exhibit 2: New Business Premium by customer type
(%)
ULIP
NON PAR
PAR
Individual
Group
FY15
35.0
38.7
26.3
FY15
68.0
32.1
FY16
45.5
33.8
20.7
FY16
70.1
30
FY17
50.5
38.7
10.8
FY17
63.8
36.2
Q1FY18
49.9
34.7
15.4
Q1FY18
67.6
32.4
Source: RHP, Angel Research, PAR - Participating
Source: RHP, Angel Research
Sept 19, 2017
2
SBI Life Insurance Company Ltd | IPO Note
Issue details
Issuance of 12cr Equity Shares, 8cr shares by State Bank of India Ltd and 4 cr
equity shares by BNP Paribas Cardif via an offer for sale. The offer would
constitute up to 12% of post offer paid up share capital and net offer of up to
10.6%
Exhibit 3: Pre and Post-IPO shareholding pattern
No. of shares (Pre-issue)
%
No. of shares (Post-issue)
%
Promoter
96,10,00,000 96%
84,10,00,000 84%
Investor/Public
3,90,00,000
4%
15,90,00,000 16%
1,00,00,00,000
1,00,00,00,000
Source: RHP, Angel Research
Objects of the offer
To list the share of the company on the exchange
Enhance the “SBI Life Insurance” brand name and provide exit to the investor
and liquidity to SBI
Being an offer for sale, the company will not receive any proceeds from the
offer
Top ten share holders
Exhibit 4: Top Shareholders pre-Issue
Sr. No. Name of the Shareholder
Number of Equity Shares
Percentage (%)
1
State Bank
70,10,00,000
70%
2
BNPPC
26,00,00,000
26%
3
Value Line Pte. Ltd
1,95,00,000
2%
4
MacRitchie Investments Pte. Ltd
1,95,00,000
2%
Total
1,00,00,00,000
100%
Source: RHP, Angel Research
Sept 19, 2017
3
SBI Life Insurance Company Ltd | IPO Note
Investment Rational
Insurance industry to continue to grow
The size of the Indian life insurance industry is ₹ 4.2 trillion on a total-premium
basis as of fiscal 2017. In terms of total premium, the Indian life insurance industry
is the 10th largest market in the world and the fifth largest in Asia based on Swiss
Re, sigma No 3/2017 report. New premium constituted 42% of the total premium
as of fiscal 2017. The industry’s assets under management (AUM) grew at a
compound annual rate (CAGR) of 19% during FY2001-17 to ₹ 30 trillion. Total
premium has grown at a stupendous 17% CAGR during FY2001-17, after the
privatisation in 2000 (Source: CRISIL Report).
We expect healthy growth for the industry to continue going ahead owing to 1)
Low Penetration of Insurance in India, 2) Focus on Financial Inclusion,
3)
Increasing Insurable Population,
4) Protection Gap,
5) Rise in Healthcare
Spending.
Exhibit 5: Sum assured as % of GDP low versus major peers
300
270
260
250
226
200
166
149
150
106
96
100
70
50
0
US
Japan Singapore Korea Malasia Germany Thailand
India
Source: RHP, Angel Research
Exhibit 6: Share of investment in life insurance as a % of financial savings
100%
9.7
10.2
90%
13
14.7
9.2
15.9
16.1
12.2
13.2
11.4
80%
14.2
10.5
12.7
10.5
8.3
70%
9.8
10.5
20.8
21
13.5
22
16.9
15.3
60%
19.5
19.5
26.2
50%
18.3
40%
30%
57.2
56.4
54
54
50.4
50.8
46.6
20%
40.2
41.3
10%
0%
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
Bank deposits Life insurance fund Currency Provident and pension fund Others
Source: RHP, Angel Research
Sept 19, 2017
4
SBI Life Insurance Company Ltd | IPO Note
Strong premium growth has resulted consistent market share gain: SBI Life has
been reporting strong growth in New Business Premium, with 38.9% growth in
FY2017 and 3 year CAGR of 28.3% v/s. industry growth rate of 26.2% and 13.5%
respectively. Over FY2014-17, SBI Life has improved its market share by ~300bps
to 20% (FY2017). Among the Private Insurers, SBI holds leadership position
followed by HDFC Life - 17.2%, ICICI Pru - 15.5% and has retained No. 1
position since last 8 years in NBP.
In FY2017, it also enjoyed a market share of Individual Rated Premium of 20.7%
among private life insurers in India and 11.2% of the entire life insurance industry
in India (Source: CRISIL Report). Between FY2015-17, Individual Rated Premium
increased at a CAGR of 38 %, the highest among the top five private life insurers
(in terms of total premium in FY2017) in India (Source: CRISIL Report).
Exhibit 7: Market Share of Private Life Insurers on the Basis of New Business Premium
FY12
FY13
FY14
FY15
FY16
FY17
SBI Life
20
17
17
16
17
20
HDFC Standard Life
12
14
14
16
16
17
ICICI Prudential Life
16
16
13
15
17
16
Max Life
6
6
8
7
7
7
Bajaj Allianz Life
8
10
9
8
7
7
Other
39
37
40
38
36
34
Source: RHP, Angel Research
Exhibit 8: Premium growth of Private life insurance players
SBI
HDFC
ICICI
Max
Bajaj
Life
Life
Pru Lif
Life
Allianz
Premium Growth (%)
New business premium
2016-17 growth
43
34
16
27
14
3-year CAGR
26
29
28
17
8
5-year CAGR
9
18
9
14
4
10-year CAGR
15
18
4
15
-3
Renewal premium
2016-17 growth
25
9
17
12
-4
3-year CAGR
24
10
19
12
-4
5-year CAGR
10
11
9
10
-10
10-year CAGR
40
24
18
28
11
Individual Rated Premium
2016-17 growth
39
9
29
25
41
3-year CAGR
28
15
25
14
0
5-year CAGR
23
6
18
12
-5
10-year CAGR
17
11
5
13
-11
Source: RHP, Angel Research
Sept 19, 2017
5
SBI Life Insurance Company Ltd | IPO Note
Widest distribution network backed by parent has ensured healthy AUM growth:
SBI Life’s parent i.e. SBI has a mammoth network of ~24,000 branches, which
helps it in garnering new business on continuous basis, and has been instrumental
in the strong AUM growth up 17.1% over FY2015-17 v/s. ICICI Pru’s 10.7% and
HDFC Life’s 16.9% over the same period. Low miss-selling, high claim settlement
and low surrender ratios will continue to drive the business of the company and we
expect high double digit growth to sustain for multiple years going ahead.
Bancassurance represents SBI Life’s largest distribution network and in
FY15/16/17/Q1FY18, contributed 47.8%, 54.4%, 53% and 63.5%, respectively, of
the company’s total NBP in such periods. It also reported a growth of 38.4% in
Individual NBP generated through bancassurance channel from FY16 to FY17.
Exhibit 9: Assets Under Management growth (` in Cr) (FY15-17)*
140
123
120
101
100
104
98
100
92
80
80
71
74
67
60
44
36
40
31
20
0
SBI Life
ICICI Pru
HDFC
Pru
Max Life
Source: RHP, Angel Research*SBI Life FY15-Q1FY18
Exhibit 10: Key Banking Partners of Top-Five Players with branch network
ICICI Prudential Life
HDFC Standard Life
SBI Life
Max Life
ICICI Bank
HDFC Bank
State Bank
Axis Bank
4,850
4,715
24,017
3,304
Standard Chartered Sara swat Co-operative Bank Punjab & Sind Bank
Yes Bank
101
1,500
1,000
The Ratnakar Bank
South Indian Bank Lakshmi Vilas Bank
239
850
481
Source: RHP, Angel Research
Exhibit 11: One of the lowest operating expense ratio (%)
16
14.8
14
12.3
12
10.5
9.8
9.1
9.4
10
7.8
8
6
4
2
0
FY15
FY16
FY17
1QFY18
ICIC Pru HDFC Life Max Life
SBI Life
FY17
Source: RHP, Angel Research
Sept 19, 2017
6
SBI Life Insurance Company Ltd | IPO Note
Diversified product portfolio, high solvency & persistency makes SBI Life’s business
more predictable: SBI Life has a well balanced portfolio (ULIP - 50.5%, Non
participating - 34.7% and Participating - 15.4%) and is well capitalised with a
solvency ratio of 211% (mandatory - 150%). This will ensure growth without
dilution in the coming years, boosting the RoE from current level of 17%. Further,
13/37/61 month persistency ratio is the best among Private Players (SBI -
81.1/67.4/67.2, ICICI Pru - 85.7/66.8/56.2 & HDFC Life 80.9/63.90/56.8). This
reflects in the lowest surrender ratio of 22.8% among the Private players (ICICI Pru
- 52.8% and HDFC Life - 31.3% for FY2017).
Exhibit 12: Well balanced product portfolio
100%
10.8
7.9
15.4
14.4
90%
20.7
26.3
13
80%
70%
38.7
58.2
34.7
60%
33.8
50.4
38.7
50%
40%
79.1
17.5
30%
50.5
49.9
45.5
20%
35
35.2
10%
24.3
0%
FY15
FY16
FY17
1QFY18
ICIC Pru HDFC Life Max Life
ULIP Non PAR PAR
SBI Life
Source: RHP, Angel Research
Exhibit 13: Customer retention through quality underwriting…
Persistency ratio (fiscal 2017)
SBI
HDFC
ICICI
Max
Bajaj
By premium (%)
Life
Life
Pru Life
Life
Allianz
13
81
81
86
80
68
25
74
73
74
70
51
37
67
64
67
60
44
49
62
58
59
55
38
61
67
57
56
53
32
Source: RHP, Angel Research
Persistency Ratio
As most of Insurance products require periodic premium contributions from
policyholders. The customer retention is essential for continued profitable growth.
Customer retention is also directly linked to Persistency Ratios, which is a crucial
indicator of business viability.
Persistency is the percentage of premium of policies remaining in force to the
premium of all policies issued. Persistency is calculated with respect to policies
issued in a fixed period prior to the period of measurement. Maintaining a high
level of persistency is important to results of operations, as a large block of in-force
policies provides SBI Life with regular revenues in the form of Renewal Premiums.
Sept 19, 2017
7
SBI Life Insurance Company Ltd | IPO Note
Outlook & Valuation
We believe the Indian Life Insurance industry is in a phase of high growth and
lower penetration will ensure the growth remaining higher for next couple of years.
SBI Life with its strong brand name and wide distribution network is one of the best
plays for Indian Life insurance industry. At the upper price band of `700 the issue
is offered at 4.2x its Embedded Value of `16,538cr, little higher than 3.8x for ICICI
Prudential. We believe the premium valuation for SBI is justified due to its higher
incremental market share gain, and hence we recommended investors to
“SUBSCRIBE” to the issue with long term perspective.
Exhibit 14:
SBI Life
ICICI Pru Life*
Implied Market Cap
70,000
60,800
EV
16,550
16,190
P/EV
4.2
3.8
ROEV (%)
23.0
16.5
Source: Company, Angel Research,* ICICI Pru Life Market Cap as on 18th Sep 2017
Key Risk
Any termination of, or adverse change in bancassurance arrangements
In Fiscal 2015, 2016 and 2017 and for the three months ended June 30, 2017,
the bancassurance channel contributed
51.7%,
60.7%,
64.7% and
65.6%,
respectively, of New Business Premium from individual products. If there is any
adverse change in this channel it may impact the profitability of the company.
Abrupt change in interest rates
The profitability of certain insurance products and return on investment are
particularly sensitive to interest rate fluctuations. As of Q1FY18, 77% of the
company’s investments were in debt securities. Changes in prevailing interest rates
could reduce the investment returns and spread and thus materially and adversely
affect the business and investment returns, financial condition and results of
operations.
Sept 19, 2017
8
SBI Life Insurance Company Ltd | IPO Note
Statement of Revenue
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17
Policyholders account
Premiums earned - Net
10,345
10,702
12,780
15,665
20,852
% Growth YoY
3
19
23
33
Income from Investment
4,618
6,655
10,393
3,435
9,358
Other Income
12
12
14
20
67
Total Income (A)
14,976
17,373
23,206
19,142
30,311
% Growth YoY
16
34
(18)
58
Total Expenditure (B)
1,720
1,853
1,999
2,522
2,832
% Growth YoY
8
8
26
12
Commission
510
558
604
714
783
% Growth YoY
9
8
18
10
Provision for Doubtful Debts
1,000
1,089
1,168
1,481
1,646
Other Expenses
210
206
228
327
402
Liabilities against life policies (C )
12,521
14,704
20,484
15,953
26,791
Benefits paid (Net)
7,779
8,780
8,198
7,959
9,526
Interim & terminal bonuses paid
1
2
3
7
24
Change in valuation of Liab in respect of LP*
-
-
-
-
-
(a) Gross **
4,663
3,868
6,066
6,759
8,592
(b) (Amount ceded in Re-insurance)
(8)
(9)
(1)
(30)
(3)
(c) Amount accepted in Re-insurance
-
-
-
-
-
(d) Fund reserve
(190)
1,578
5,381
1,232
8,277
(e) Funds for discontinued policies
277
485
838
27
376
SURPLUS/ (DEFICIT) (D) = (A) - (B) - (C)
735
815
722
667
687
% Growth YoY
11
(11)
(8)
3
Appropriation
6
8
(15)
(15)
(33)
Shareholder Accounts
741
823
707
652
655
Income from Investment
nterest, Dividend & Rent - Gross
133
174
232
276
314
Other Investment Income
24
36
52
50
95
Total Income
898
1,033
991
977
1,064
% Growth YoY
15
(4)
(1)
9
Operating Expenditure
268
305
162
122
90
Profit / (Loss) Before Tax
630
728
829
855
975
Tax
-
-
14
11
20
PAT
630
728
815
844
955
% Growth YoY
15
12
4
13
EPS
6
7
8
8
10
% Growth YoY
15
12
4
13
Source: RHP ,LP-Life Policy
Sept 19, 2017
9
SBI Life Insurance Company Ltd | IPO Note
Balance sheet
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17
Source Of Fund
Share capital
1,000
1,000
1,000
1,000
1,000
Reserves
1,736
2,356
3,056
3,733
4,552
Shareholders funds
2,736
3,356
4,056
4,733
5,552
Borrowing
4
3
3
-
-
Policyholders fund
Policyholders liabilities
23,019
27,057
33,361
39,970
49,100
Provisions for linked liabilities
26,526
28,590
34,809
36,022
44,573
Funds for future appropriation
23
12
7
0
-
Total liabilities
52,309
59,018
72,237
80,725
99,225
Application of Fund
Shareholders funds
1,812
2,353
3,070
3,565
4,296
Policyholders
21,688
25,324
31,504
38,256
46,962
Asset held to cover linked liabilities
26,548
28,597
34,810
36,022
44,573
AUM
50,047
56,275
69,385
77,843
95,830
% Growth YoY
12
23
12
23
Loans
0
1
2
124
178
Fixed assets
286
308
298
447
538
Current assets
Cash
2,153
2,542
2,524
2,617
2,430
Advances and Other Assets
1,228
1,515
1,912
2,399
3,263
Current liabilities
1,406
1,623
1,884
2,705
3,014
Ner Current Asset
1,976
2,434
2,552
2,311
2,678
Total Asset
52,309
59,018
72,237
80,725
99,225
% Growth YoY
13
22
12
23
Source: RHP
Sept 19, 2017
10
SBI Life Insurance Company Ltd | IPO Note
Key Ratios
Y/E March
FY13
FY14
FY15
FY16
FY17
Per Share Data (`)
EPS
6.3
7.3
8.1
8.4
9.5
BV
27.4
33.6
40.6
47.3
55.5
IEV
12,548
16,538
Valuation Ratio
PE
111.1
96.2
85.9
82.9
73.3
P/BV
25.6
20.9
17.3
14.8
12.6
P/EV
5.6
4.2
ROE (%)
23.0
21.7
20.1
17.8
17.2
Solvency Ratio (x)
2.2
2.1
2.0
Opex Ratio (%)
Operation Exp
9.1
9.4
7.8
Commission
4.7
4.5
3.7
Total Cost
13.8
13.9
11.5
Persistence Ratio (Months)
%
13
81.1
25
73.9
37
67.4
49
62.5
61
67.2
Note: Valuation ratios based on pre-issue outstanding shares and at upper end of the price band
Sept 19, 2017
11
SBI Life Insurance Company Ltd | IPO Note
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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offering of securities of the company covered by Analyst during the past twelve months.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
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